Capital Gains on Rental Property

Selling a rental property in Columbus, OH generally triggers two layers of federal tax: capital gains tax on the appreciation and depreciation recapture on the depreciation claimed during the holding period. Long term capital gains rates apply when the property was held for more than one year, while depreciation recapture is generally taxed at a rate of up to twenty five percent under Internal Revenue Code Section 1250. Ohio does not impose a separate state capital gains tax; instead, gain from the sale of Ohio real estate is generally included in Ohio adjusted gross income and taxed at the state's graduated individual income tax rates. Investors selling a rental home, duplex, or small multifamily building in Franklin County or the surrounding Columbus metro often discover the combined federal and state liability is larger than expected once depreciation recapture, net investment income tax, and Ohio income tax are added together.

A like kind exchange under Section 1031 of the Internal Revenue Code allows an investor to defer both the capital gains tax and the depreciation recapture by reinvesting the net proceeds from the sale into replacement real property held for investment or business use. The relinquished rental property and the replacement property must both be real property located within the United States, and the exchange must be structured through a Qualified Intermediary who holds the sale proceeds so the investor never takes constructive receipt of the funds. We help investors in Columbus, OH evaluate whether a rental property sale is a strong candidate for a one thousand thirty one exchange, coordinate the forty five day identification period, and identify replacement property that fits the investor's cash flow and management goals.